How does Russia find “back doors” to the European energy market? The bill of the war

Russia’s military intervention in Ukraine in February 2022 dramatically shaped the balance in the global energy market. As a reaction to the unprovoked intervention, the Western allies-imposed sanctions on Russia in an attempt to limit the export of fossil fuels and find alternative supplies to end Moscow’s long-term energy monopoly.

According to the data released in 2023, the EU paid just under €140 billion to Russia for fossil fuels, including €83 billion for oil and €53 billion for natural gas and €3 billion was spent on coal.

It has been a priority for the EU to reduce these payments. Sanctions on seaborne crude oil took effect in December 2022, and refined oil products in February 2023. However, while the EU-Russia energy trade has been reduced, it has certainly not stopped, with no sanctions imposed so far on Russian gas. Consequently, the massive gap left by Russia has been filled by various countries, including the United States, Norway, Algeria, Brazil, Angola and the United Arab Emirates.

However, not all EU member countries were happy with the imposed bans on Russian fossil fuels, referring to their inability to replace oil and gas imports soon. Therefore, the EU exempted oil imports through the Druzhba pipeline upon the request of landlocked countries in Central Europe, particularly Hungary.

Although the EU countries significantly decreased oil imports from Russia, this measure did not completely neutralize the Russian war machine. On the contrary, recent reports have revealed that the EU has raised its imports of Russian liquified natural gas (LNG) by 40% since it began its brutal invasion of Ukraine.

As such, between January and July 2023, the EU purchased 22 million cubic meters of LNG from Russia. Notably, this was a 40% climb on EU imports of Russian LNG for the same period in 2021. Indeed, there is a loophole in third countries like India and China that keep importing Russian oil, gas, coal, and diesel.

As a result, the EU's attempts to squeeze Russia's financial abilities yielded little results. Therefore, the Ukrainian authorities harshly criticize their European counterparts for disregarding Russia's backdoor energy exports, as significant quantities of Russian hydrocarbons, particularly oil, are still flowing around sanctions and into the European market.

For example, in its latest interview, Oleg Ustenko, an economic adviser to Ukrainian President Volodymyr Zelenskyy, emphasized the fact that a price cap of $60 a barrel on Russian crude enabled countries like China and India to import cheap Russian oil in huge quantities.

India is the second-largest importer of Russian fossil fuels, having ramped up the amount of fossil fuels imported more than ten times since Russia's invasion of Ukraine. As a result, Indian exports of fuel products to the EU have skyrocketed. In June, it exported 5.1 million barrels of diesel and 3.2 million barrels of jet fuel to the bloc, up from just 1.68 million barrels and 0.51 million barrels, respectively, in June 2021.

In fact, crude oil is notoriously difficult to track on global markets. It can easily be mixed or blended with other shipments in transit countries, effectively creating a larger batch of oil whose origins can't be determined.

Notwithstanding this, the US still maintains its position as Europe's leading crude oil supplier amid Russia's shrinking stakes in the market. Reportedly, the United States is the bloc’s second-biggest supplier of gas, with a nearly 20% share, behind top source Norway, which accounts for almost 31% of EU gas imports.

Although anti-Russian sentiments are high in the West, it does not prevent Russia from exporting limited volumes of natural gas that flows via Ukraine and the Turkstream pipeline to Europe.

Notably, as of 2023, the EU has not implemented any sanctions on Russian natural gas. Instead, Russia progressively cut gas exports to the EU, forcing the bloc to adopt a twin strategy of reducing domestic demand and dramatically increasing LNG imports from elsewhere.

The EU has significantly reduced its dependence but did not fully eliminate it, particularly on natural gas. Some analysts argue that the EU could still pay €21 billion to Russia for gas, rising to as much as €55 billion. The continuous flow of Russian gas and payments in exchange would be roughly equivalent to the foreign aid provided to Ukraine amid the raging war.